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purchase of workstations from Sun by CV and served to lower the
overall cost to CV of the transaction with Sun. Moreover, he
testified that CV had never invested in a supplier prior to the
transaction with Sun, did not make such investments, and did not
regard the warrants as an investment in Sun. Other witnesses
testified similarly. CV, in fact, never acquired any Sun stock
pursuant to the warrants, but sold the warrants shortly after
they first became exercisable to underwriters.
Additionally, the fact that the second warrant was
exercisable only upon the transaction of a specified dollar
volume of business between CV and Sun, either in the form of
purchases of Sun products or payment of royalties by CV,
indicates that it was in the nature of a trade discount.18 Other
circumstances connected with the transaction support such
characterization. The investment agreement made between Sun and
CV described the warrants as “an additional incentive for an
ongoing business relationship” between them. The transaction
with Sun involved a major strategic shift for CV from
manufacturing workstations to purchasing them from a vendor, and
the warrants operated as an additional incentive for CV to
18
A trade discount is generally considered a price reduction
that is allowed upon the purchase of a specified quantity of
merchandise. See Benner Tea Co. v. Iowa State Tax Commn., 109
N.W.2d 39, 43 (Iowa 1961); Argonaut Ins. Co. v. ABC Steel Prod.
Co., 582 S.W.2d 883, 887-888 (Tex. Civ. App. 1979); Sperry &
Huchinson Co. v. Margetts, 96 A.2d 706, 713 (N.J. Super. Ct. Ch.
Div. 1953), affd. 104 A.2d 310 (N.J. 1954).
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